HR Management & Compliance

Employers May Be Eligible for Tax Break Under HIRE Act

The Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847), a jobs bill President Barack Obama signed into law on March 18, 2010, provides tax breaks to employers that hire unemployed workers or individuals who were only working part-time in 2010. Under the HIRE Act, qualified employers could receive a payroll tax incentive and a general business tax credit.

Payroll Tax Incentive

Under the Act, employers that hire new employees this year may be exempt from paying the 6.2 percent social security tax on wages paid to qualified employees after March 18, 2010, through December 31, 2010. An employee is “qualified” if she:

  • starts work after February 3, 2010, and before January 1, 2011;
  • certifies in a signed affidavit that she hasn’t been employed for more than 40 hours during the previous 60-day period (the 60-day period ends on the date the employee starts work);
  • wasn’t hired to replace another employee unless the other employee voluntarily left the position or was terminated for cause; and
  • isn’t a family member or other relative of the employer.

All employers are qualified to receive the payroll tax incentive except for federal and state governments or any of their political subdivisions or instrumentalities. However, public institutions of higher education are eligible to receive the tax incentive.

Employers can claim the payroll tax exemption on the federal employment tax return they file with the IRS. A qualified employer may also elect out of the exemption, and the secretary of the Treasury is supposed to determine how to make such an election.

General Business Tax Credit
Employers may also be eligible to receive a tax credit for a qualified employee under the HIRE Act if:

  • the employee was retained for at least 52 consecutive weeks; and
  • his wages during the last 26 weeks of the 52-week period were at least 80 percent of his wages for the first 26 weeks of that period.

The tax credit is equal to the lesser of:

  • $1,000; or
  • 6.2 percent of the wages paid by the employer to such a retained worker during the 52-consecutive-week period discussed above.

Keep up with the latest legal changes in employer benefits with the Benefits Complete Compliance and with changes in federal employment laws in the Federal Employment Law Insider.

13 thoughts on “Employers May Be Eligible for Tax Break Under HIRE Act”

  1. What form would the employer use to take the tax credit for the HIRE act?

    Where is form that employee would use to certify that they haven’t been employed for more than 40 hours during the previous 60-day period?

    Does employee still have a Social Security Tax?

    Does employer pay the tax then get credit using a tax form or do they just not pay the tax?

  2. What form would employers use to take the tax credit for the HIRE act?

    Payroll Tax Incentive—this payroll tax benefit can be claimed on the federal employment tax return employers file with the IRS. (These employment tax returns are usually filed quarterly.)

    General Business Tax Credit—the tax credit can be claimed when employers file their 2011 income tax returns.

    Where is the form that employees would use to certify that they haven’t been employed for more than 40 hours during the previous 60-day period?

    The IRS is currently developing a form employees can use to make the required certification.

    Do employees still have a Social Security Tax?

    Employees still have to pay their share of the Social Security tax, and employers still need to withhold the employee’s portion.

    Do employers pay the tax then get credit using a tax form or do they just not pay the tax?

    Payroll Tax Incentive—Employers are exempt from paying their portion of Social Security tax for the applicable period.

    Employers will claim the General Business Tax Credit on their 2011 income tax returns as a credit.

  3. How would a staffing company track this when you have temps coming and going every single day? I would like to take advantage of this but I see a nightmare of paperwork to track.

  4. It seems the 40-hour threshold could penalize contract-to-hire positions. For example, an employer enlists an unemployed worker on a contract basis for a couple weeks, then decides to hire permanently. Using this method, the employer may lose the credit if the contract worker exceeded 40 hours, correct? Are there any exceptions for contract and temp positions, for example Census workers, whose assignment is fixed duration?

  5. Is it that employers will be able to not pay the employer tax immediately during payroll of those individuals or is it that employers are reimbursed the payroll tax and receive the credit when they file their tax return?

  6. Where can I get the necessary forms?

    The Employee Certification: The IRS is currently developing a form employees can use to make the required certification.

    Payroll Tax Incentive: According to the IRS’ website, “The payroll tax exemption is claimed on Form 941, Employer’s QUARTERLY Federal Tax Return, beginning with the second quarter of 2010.”

    The General Business Tax Credit: According to the IRS’ website, “The new hire retention credit will be claimed on the employer’s 2011 income tax return.”

  7. Are staffing firms considered qualified employers under this act? Can we take adavantage of both payroll tax incentive and tax credit for the employees that we put to work temporary positions?

  8. Does this only apply to full time positions? If yes, how many hours must be worked a week?
    If part time is ok, is there a minimum number of hours that must be met?

  9. Wow, I screwed up. Had several employees that I could have claimed but did not. Think I can refile and get my money back from the IRS?

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